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Buy Cummins, a Growth Engine for the Future

Through managing the Prosocial Portfolio for Fool.com, I seek out companies that are driving toward a more socially responsible, sustainable world. When we think of engines, we might immediately think of trucks. Dirty, right? Not so fast -- here's a company whose engines are driving a refreshingly green strategy.

Engine maker Cummins (NYSE: CMI) is a classic company, but it's been revving up efforts for cleaner and more cost-efficient commerce for more than a decade. I'm excited to add this stock to the Prosocial Portfolio, given its position in the marketplace's increasing focus on positive business and profitable growth.

Trucking along for a centuryColumbus, Ind.-based Cummins joins the ranks as one of the more venerable stalwarts in the Prosocial Portfolio. It's been trucking around since 1919; it's one of the first manufacturers that provided diesel engines, and it's a major force in providing the engines that make our economic world go round.

Cummins designs, manufactures, and distributes natural gas and diesel engines, as well as engine components. About half of its business focuses on providing engines for ultra-heavy-duty vehicles such as trucks, buses, RVs, as well as machines used in agricultural, construction, and other major markets. Cummins also provides power generation products.

The engine company's business isn't limited within U.S. borders. International customers make up about half of its sales, and the company is well positioned to take advantage of economic development in emerging markets.

This industry isn't sexy, but it sure can be dirty, considering the reality of carbon emissions and gas guzzling. For the Prosocial Portfolio's purposes, Cummins represents a massive step in the right direction. Its products can make major differences in the modern economy due to its work on green trucking. These solutions aren't just nice to have, they're need to have. They don't just slash costs for its customers but also helps them comply with increasingly strict emissions standards.

Cummins is no latecomer to sustainable business initiatives. In the late 1990s, Cummins started studying ways to use its expertise to this end, and its green initiatives are hardly new. Management recognizes that sustainability is in fact a business advantage -- a factor that more and more companies are accepting and embracing.

Tackling the impossibleCummins has received plenty of accolades in green business initiatives. Last month, it ranked No. 52 in Newsweek's 2014 green rankings of America's 500 largest public companies. It also takes the No. 86 slot among the largest companies in the world, coming in ahead of other companies in its industry in both lists.

There are plenty of ways that Cummins' solutions are important, not least of which is that it's helped its customers save $3 billion since 2005. In addition, 90 million gallons of fuel have been saved, as well as approximately 1 million tons of carbon dioxide avoided.

The Cummins-Peterbilt "SuperTruck" prototype has been a major high-profile success, managing 75% fuel economy improvement compared to engines used by other trucks on the road. It's done what many called impossible years ago, squeezing out 10.7 miles per gallon when most trucks average somewhere between 5.5 mpg and 6.5 mpg.

President Obama even lauded this engine's capabilities this past winter. According to the Department of Energy, if such a vehicle was adopted throughout the trucking industry, it could reduce oil consumption by 300 million barrels every year, saving $30 billion in fuel costs.

In the stakeholder-friendly sense, Cummins seeks to meet all the criteria by aiming for shareholder returns as well as positive impacts on communities. Companies that try to deal with environmental and other socially responsible issues are increasingly proven to make for happier employees -- those who feel strongly about having jobs that will help them change the world for the better.

Cummins receives a 3.6 rating on Glassdoor.com; according to the review, 85% approve of CEO Tom Linebarger, and 75% would recommend the company to a friend.

Buying for the big haulRegardless of investors' personal investment philosophies, there's a lot to like about Cummins. We're talking about a business that is financially sound, and it's a good bargain right now, too.

Cummins boasts thousands of customers; its largest is PACCAR (NASDAQ: PCAR) , its partner in the SuperTruck achievement, which represented 12% of its revenue last year. Other customers include Navistar, Ford, Daimler, Chrysler, and Volvo.

In addition, this dividend-paying stock is a bargain. Cummins' forward price-to-earnings ratio is just 14, cheap compared to analysts' expectations for 23% earnings growth in 2015. Its PEG ratio is 1.31, in the undervalued range considering five-year growth expectations.

Cummins also boasts a sound balance sheet with $2.31 billion in cash and a total debt-to-capital ratio of just 18%. In addition, Cummins pays a dividend, a nice financial bonus that investors won't find in some of the jazzier, story stock names in the green investing field.

Charging aheadAbout a year ago, The Motley Fool ranked Cummins No. 1 on a list of 25 best companies in America. It beat out plenty of more consumer-facing companies that would be expected to be on that list. The criteria for the list sought to measure care for multiple stakeholders, instead of looking at just publicly held businesses’ short-term profitability alone.

Cummins is obviously a stable company in a massive industry. However, its environmentally sound strategies put extra horsepower under the hood. On a big-picture level, its strategy has to do with profits and higher purpose -- putting both of those together power up the greatest stocks.

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Comments from our Foolish Readers

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I would like to see Cummins develop small diesel engines for cars and for automakers to offer them in their products. People trust the Cummins name and would be more likely to buy them as opposed to a manufacturer taking a shot at building their own diesels. I still remember the GM 350 diesel.

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Alyce Lomax is a columnist for Fool.com and an analyst for Motley Fool One. She specializes in environmental, social, and governance investing topics, and from November 2010 through June 2015, she managed the real-money Prosocial Portfolio, which integrated socially responsible investing factors into stock analysis. Follow @AlyceLomax